Effects of Automation on a Small Business

In a previous post, I was talking about how you might be trading your time for money. That's how an employee thinks, and not how an owner thinks.

An owner is a person who is in charge of their own labor, production, and output cycle. They are the boss.

Maybe they are the owner of their own work (they're a freelancer). Maybe they own the work of others (they're a boss). Maybe they own their own small business. Regardless, an owner is a person who can make rational decisions that change a business process.

So an owner - recognizing that they've created a business model that trades their time for money, and that they want something more than just a job - attempts to invest in technology. Technology, they presume, will make them more productive and reduce their hands-on time with the business. That's a fairly reasonable assumption:

Investment in technology will increase automation, improving the owner's efficiency and productivity. An example: instead of writing out invoices and timecards and expenses, they subscribe to an online cloud service that automates capturing their time and expenses, prepares their invoices, sends them, and facilitates payment. That, indeed, improves productivity for the owner and increases how effectively they use their time.

But there's several ancillary benefits here. Primary, they've started a process of systemizing their business.  Systems are repeatable business processes and can be sold, and through this investment, they're actually building an asset out of their business rather than relying upon it for a job.  Greater systems reduces the friction of a business - that is to say the number of touch-points the owner has to run through to keep the business operating. Think about it: if the owner is able to automate a majority of their billing processes, then it takes less touch (less effort, less friction) to keep the business going and the money coming in. 

That allows them to scale: take on more clients and to become more profitable over time. And more profits leads to spending money with the highest potential of return - probably re-investing in more technology. So it becomes a virtuous circle: investments in technology produce a visible, meaningful return that increases the value of the business as an asset, and, pushes profitability up.

That's probably going to be a lot different in terms of a strategic outcome than somebody else who didn't invest in technology - rather, let's pretend they spent their money on marketing. They got the word out about their businesses and attracted more clients, and find themselves more busy than they've ever been. They're working like a great employee of the job they've created for themselves.

They didn't invest in technology which means they don't have an ability to automate, and that pushes up the cost of their labor. They've got to pay attention to the little things like time capture, invoicing, and receivables, and they aren't spending time on their work product. That pushes their productivity and efficiency down. Further, they haven't systemized the business. They haven't built an asset ... it's just their job that they continue to toil away at, touching more and more things (creating more friction), reducing their profitability and their ability to reinvest their profits in the business.

Do you see their mistake here? They spent money on marketing and attracted a bunch of new business, working harder instead of smarter, which made them less of a return and didn't bolster their business as an asset. They did, however, perform well under the stress of a job. 

More investment in technology creates more automation and more systems. In turn, that transforms the business into an asset - something that can be resold and repeated by anyone over time. 

So, okay. Next time around, let's talk about how businesses can confront the problems of investing in technology or labor. We'll talk about the options small business. In the meantime, take a look at your small business. Where are you automating? Where's the low-hanging fruit that would systemize your business and transform it from a job and into an asset? How is the lack of technology reducing your capability to grow, expand, and scale?

R